Bad for Business?

Companies have long complained that Montgomery County is a hard place to get things done. Politicians may be starting to listen.

By Eugene L. Meyer

| Published: 2014-11-03 14:04

Montgomery County is coming late to the party.

Consider: The Fairfax County Economic Development Authority has 35 full-time employees, a $7.3 million annual budget and 21,000 square feet of offices in Tysons Corner, as well as seven other offices in cities around the world—from Boston to Bangalore. It was started 50 years ago to promote Fairfax as a good place to do business. Its top official has held the job for about 30 years.

Across the river, its counterpart, the Montgomery Business Development Corp., is a virtual startup, with a small, second-story rear office in an 1896 building by the old Rockville train station, three full-time employees and a $540,000 budget. It was created by the county council in July 2010, but its director wasn’t hired until November 2012. Its initial mission is to gather and disseminate data and to meet with county businesses. Baby steps.

The Montgomery Business Development Corp. came about in response to what the council perceived to be the county government’s lack of aggressiveness in pursuit of business. It coexists, somewhat uneasily, with the governmental Department of Economic Development, whose director, Steve Silverman, acknowledges that Fairfax County is “way ahead of us in marketing money.”

But Montgomery County’s slogan, reflecting the earnestness of its leaders, might well be: We are trying harder to try harder. The Montgomery County Chamber of Commerce has another slogan. “We are what is next,” appears in capital letters on its 2014 legislative agenda handout. Which is to say, whatever our record, the future is here.

The chamber boasts in its marketing materials that Montgomery is No. 2 in the country for small businesses contracting with the federal government. Not stated, but acknowledged in an interview, is that Fairfax is No. 1.

Though other jurisdictions might brag about a No. 2 national ranking, the constant comparison to Fairfax rankles local politicians. County Executive Ike Leggett says the perception that Montgomery County is inhospitable to businesses persists, even though he doesn’t believe it to be true. “You have to treat it as reality,” Leggett says. “Eventually, the reality will catch up with the facts, but you can’t deny there is the perception.”

The perception—fair or not—was a major theme during the spring’s primary contest for county executive, when challenger Doug Duncan, the former three-term county executive, based his unsuccessful comeback bid largely on his pro-business record. For whatever reason, the issue did not resonate with residents, few of whom even bothered to vote in June’s Democratic Party primary, when a victory would be tantamount to election in heavily Democratic Montgomery County.

Fueling this perception are decisions by high-profile corporations such as Northrop Grumman and Hilton to move their headquarters from California to the region, but to Fairfax rather than Montgomery. Less publicized are decisions by big names such as Choice Hotels International to stay here, moving its corporate offices from Silver Spring to Rockville.

But it’s not just about marquee corporations. It’s about jobs, and who’s ahead depends on which numbers you use. According to the U.S. Bureau of Labor Statistics (BLS), which counts only the employed, Fairfax added 36,795 jobs from January 2010 to December 2013, while Montgomery added 17,661 over the same period. But using figures from EMSI, a nationally-recognized data service that also includes the self-employed, Montgomery added 32,530 new jobs, Fairfax 29,837 over that same time frame. Naturally, Montgomery officials prefer to cite EMSI. “Based on our analysis,” Leggett boasts, “we are probably doing better than anyone in the region.”

It’s also about culture. “So many of our people won’t say they are anti-business, but they don’t view themselves like most of the nation does as involved in the free enterprise system,” says Blair Lee, chairman of the Silver Spring-based Lee Development Group and a longtime observer of county politics.

“Look at the county council,” he says. “How many come out of the private sector? They reflect the electorate. They are not pro-business. We live in a county largely oblivious to the free enterprise capitalistic system. The people who’ve come to live in Montgomery County are largely here because of the federal government. That’s why you can’t get elected here running against big government. We are big government.”

In many ways, the two jurisdictions are remarkably similar. According to the U.S. Census Bureau, Montgomery has 1,016,677 residents, Fairfax, 1,130,924. Both boast some of the highest household incomes in the nation, good schools, a highly-educated workforce, lots of trendy restaurants and upscale neighborhoods.

But their governments march to different drummers. Unlike Montgomery, Fairfax has no local income tax, and its energy tax—a key business consideration—is much lower. Virginia is a so-called right-to-work state, which means workers cannot be required to pay dues to unions that represent them. Raising the minimum wage, which Montgomery County has done, is not on the table in Fairfax. Further, in Fairfax, whichever party rules, the board of supervisors is consistently pro-business. The backgrounds of the elected officials are revealing: In Montgomery, only Council President Craig Rice of Germantown has a business background. In Fairfax, four of 10 supervisors do.

Silverman says the tax structure in Fairfax also helps to explain why it takes a more pro-business stance. “If you are chair of the board of supervisors in Fairfax and the economy has its ups and downs and you have no local income tax,” Silverman says, “there are two choices for producing revenues for programs and services. Either support more commercial development in your county and get revenues through a broader commercial tax base, or you increase property taxes on individual homeowners, who will promptly vote you out of office.”

Attorney Robert G. Brewer Jr., the board chairman of the fledgling Montgomery Business Development Corp., says the group’s goal is to change the culture of the county, to teach politicians and civil servants the value of competitiveness. In this respect, even Brewer, who is a partner at Lerch, Early & Brewer, a Bethesda-based law firm, concedes that Fairfax is ahead. “I think we’re playing some catch-up, yes,” Brewer says. “But I wouldn’t say we are deep in the hole and down 6-1 in the bottom of the ninth.”

Gerald L. Gordon, president and CEO of the Fairfax County Economic Development Authority, and, incidentally, a graduate of Richard Montgomery High School in Rockville, says a key difference is that Fairfax has made it a longtime goal to attract, retain and grow business. “It’s all product development,” he says. “The county creates a procedure considered attractive to business. It’s like selling anything else. We don’t have to buy companies. Fairfax County has never once offered a nickel incentive. The state has, but we have never given a tax abatement, a grant, a loan, none of that. Our feeling is we have a lot to offer, so we don’t need to buy companies. They come to us.”

Fairfax is also close to Dulles International Airport, the Pentagon and other defense and intelligence agencies. Montgomery’s closest international airport, BWI-Thurgood Marshall, is nearer to Baltimore, and the county’s largest employer is the National Institutes of Health in Bethesda.

“They are more military-oriented,” Lee says of Fairfax. “The old joke is we’re the life sciences, they’re the death sciences. They live a little more in the capitalistic world than we do.”

Montgomery County’s business climate isn’t always to blame for failing to attract big businesses. Due largely to new construction in Tysons Corner and along the Rosslyn-Ballston corridor, Northern Virginia has an oversupply of office space. In the second quarter of this year, office vacancy rates were 16.4 percent in Fairfax and 20.3 percent in Arlington, compared with 15.1 percent in Montgomery, according to CoStar, a real estate research firm.

Silverman says Montgomery lost Northrop Grumman to Fairfax because the company needed a 335,000-square-foot office building, which wasn’t available here. “We put up $22 million over 10 years on the table in economic incentives,” Silverman says. “Their consultant said it was not about economic development incentives, it was about, ‘We had to buy a building.’ ” Similarly, Silverman says, Intelsat General, the satellite communications company, is moving its Bethesda headquarters and its Washington, D.C., office to Tysons because Macerich, a major Tysons developer, offered it more favorable rent in its new building there. “Overall, it was time to modernize the workplace both in technology and aesthetics,” Tim Carnahan, Intelsat’s vice president of finance and administration, says on the company’s website. “Additionally, Northern Virginia has made a name for itself as the home of many technology companies. That sort of vibe will enhance the cultural shift that is part of our move objective.”

However, not all companies considering a move made the same choice. In 2013, Choice Hotels International relocated its 400 corporate employees from the White Oak area of Silver Spring to the new Rockville Town Center.

According to Peter Bang, chief operating officer under Silverman, Choice Hotels also was considering two Fairfax sites and sought a financial incentive from the county to stay here, which wound up being a $7 million package of grants, loans and tax abatements from the state, county and city of Rockville. Bang says one grant was based on Choice Hotels staying in the county for a minimum of 10 years, retaining as well as adding jobs, and building a new, $60 million headquarters. The package even included $1.15 million in parking fee reductions at Rockville Town Center.

Even with such victories, the Fairfax comparison nags at leaders in Montgomery County. In 2009, the council asked its Office of Legislative Oversight to compare the two jurisdictions, resulting in a data-rich, 80-page report and a recommendation for further research and analysis—which was never done. The follow-up was scrapped due to what seemed like a more pressing study of the county’s structural budget deficit.